Mike Konczal

Roosevelt Institute Fellow
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Recent Posts by Mike Konczal

  • Rortybomb

    What’s New in the New Surveillance State?

    Jun 11, 2013Mike Konczal

    I had a post at Wonkblog over the weekend, “Is a democratic surveillance state possible?”

    In some sense, the issue of the government spying and collecting data on its citizens isn’t a new problem. One of my favorite tweets of the past week was Brooke Jarvis noting "Collapsing bridges alongside massive spy networks... Ah, the Jeffersonian ideal of government."

    The United States has been tracking, observing, and surveilling its citizens for centuries. That includes that long-standing form of communication, the mail. As Senator Lindsey Graham just said, “In World War II... you wrote a letter overseas, it got censored...If I thought censoring the mail was necessary, I would suggest it.”

    From the Census in the Constitution to the Cold War spy network (including the NSA, founded in 1952 through the Executive Branch), maybe this should be seen as a continuation of an old issue rather than a brand new one. But I think there are genuinely new and interesting problems with the 21st century Surveillance State and the brand new digital technologies that create the foundations for it. What’s new about the new surveillance state?

    1. It’s always on and always has been. Old acts of surveillance had to be triggered and were forward-looking. However, we now spend so much of our lives online, and that is always being recorded. As the leaker Edward Snowden said in his interview, “they can use this system to go back in time and scrutinize every decision you've ever made, every friend you've ever discussed something with. And attack you on that basis to sort to derive suspicion from an innocent life and paint anyone in the context of a wrongdoer."

    To the extent that old surveillance was capable of going back, it was by checking old records or interrogating old sources. And there the concept of amnesia comes into play.

    2. It will never forget. “Amnesia” is a normal front line of defense. People forget things. Clear memories, stories, and ideas become grey. Photos and documents get lost with time. Trying to piece together history will necessarily involve a lot of missing gaps and poor recollection.

    Not with the surveillance state. Cheap digital storage means that clear, easily replicable data will exist for the foreseeable future.

    3. It scales easily. If the FBI was keeping records on 100 people in the 1950s, and it then wanted to monitor 1,000 people, it would probably need 10 times as many resources. Certainly it wouldn’t be effortless to scale up that level of surveillance.

    As we can see in the age of Big Data and fast computing, this is no longer the case. The resource costs of accessing your phone’s metadata history versus all phones’ metadata history is going to be (somewhat) trivial. And the fact that there’s no amnesia means that you’ll always have access to that extra data.

    4. It’s designed to be accessible. As Orin Kerr emphasizes, digital data here isn’t collected or surveilled via the human senses. A person can’t simply “peek” into your email the way they could peek at your physical mail. Instead devices need to be installed to access and make sense of this data. Private sector agents will do this, because it is part of their business model to make this information accessible. These access points will also be accessible to government agents under certain conditions - part of the major debate over the PRISM program is under what conditions the government can actually access these devices.

    5. It’s primarily driven by the private sector. Broadly speaking, measures of democratic accountability and constitutional protections do not extend to the private sector. More on this soon, but things like the Freedom of Information Act to the Administrative Procedure Act to our whole regime of transparency laws do not apply to outside businesses. The government has worked with private groups before on surveillance, but here it is in large part driven by private agents, both for contractors and information gathering.

    6. It predicts the future for individuals using mass data. Surveillance has generally used mass data to either predict or determine future courses of action on a mass scale. For instance, Census data is used to allocate federal money, or predict population growth. Alternatively, it uses individual data to analyze individual behavior - asking around and snooping to dig up dirt on someone, for instance.

    The surveillance state, however, allows for using mass data to predict the actions of individuals and groups of individuals. This is what generates your Netflix and Amazon suggestions, but it is also now providing the basis for government actions. As Kieran Healy notes, this would have been interesting back in the American Revolution.

    This is distinct from the normal Seeing Like a State (SLS) critique of how states see their citizens. Some think states produce “a logic of homogenization and the virtual elimination of local knowledge...an agency of homogenization, uniformity, grids and heroic simplification” (SLS 302, 8). But rather than flatten or homogenize its citizens when observed under bulk conditions, it actually creates a remarkably individualized image of what its citizens are up to.

    What else is missing, or shouldn't have been listed? You could view these as a technological evolution of what was already in place, and in some ways that would make sense. But the technology has opened a brand new field. This existed before the War on Terror, and will likely exist afterwards; dealing with the laws and institutions behind this new state is crucial. As the technology has changed, so must our laws.

    Follow or contact the Rortybomb blog:

      

     

    I had a post at Wonkblog over the weekend, “Is a democratic surveillance state possible?”

    In some sense, the issue of the government spying and collecting data on its citizens isn’t a new problem. One of my favorite tweets of the past week was Brooke Jarvis noting "Collapsing bridges alongside massive spy networks... Ah, the Jeffersonian ideal of government."

    The United States has been tracking, observing, and surveilling its citizens for centuries. That includes that long-standing form of communication, the mail. As Senator Lindsey Graham just said, “In World War II... you wrote a letter overseas, it got censored...If I thought censoring the mail was necessary, I would suggest it.”

    From the Census in the Constitution to the Cold War spy network (including the NSA, founded in 1952 through the Executive Branch), maybe this should be seen as a continuation of an old issue rather than a brand new one. But I think there are genuinely new and interesting problems with the 21st century Surveillance State and the brand new digital technologies that create the foundations for it. What’s new about the new surveillance state?

    1. It’s always on and always has been. Old acts of surveillance had to be triggered and were forward-looking. However, we now spend so much of our lives online, and that is always being recorded. As the leaker Edward Snowden said in his interview, “they can use this system to go back in time and scrutinize every decision you've ever made, every friend you've ever discussed something with. And attack you on that basis to sort to derive suspicion from an innocent life and paint anyone in the context of a wrongdoer."

    To the extent that old surveillance was capable of going back, it was by checking old records or interrogating old sources. And there the concept of amnesia comes into play.

    2. It will never forget. “Amnesia” is a normal front line of defense. People forget things. Clear memories, stories, and ideas become grey. Photos and documents get lost with time. Trying to piece together history will necessarily involve a lot of missing gaps and poor recollection.

    Not with the surveillance state. Cheap digital storage means that clear, easily replicable data will exist for the foreseeable future.

    3. It scales easily. If the FBI was keeping records on 100 people in the 1950s, and it then wanted to monitor 1,000 people, it would probably need 10 times as many resources. Certainly it wouldn’t be effortless to scale up that level of surveillance.

    As we can see in the age of Big Data and fast computing, this is no longer the case. The resource costs of accessing your phone’s metadata history versus all phones’ metadata history is going to be (somewhat) trivial. And the fact that there’s no amnesia means that you’ll always have access to that extra data.

    4. It’s designed to be accessible. As Orin Kerr emphasizes, digital data here isn’t collected or surveilled via the human senses. A person can’t simply “peek” into your email the way they could peek at your physical mail. Instead devices need to be installed to access and make sense of this data. Private sector agents will do this, because it is part of their business model to make this information accessible. These access points will also be accessible to government agents under certain conditions - part of the major debate over the PRISM program is under what conditions the government can actually access these devices.

    5. It’s primarily driven by the private sector. Broadly speaking, measures of democratic accountability and constitutional protections do not extend to the private sector. More on this soon, but things like the Freedom of Information Act to the Administrative Procedure Act to our whole regime of transparency laws do not apply to outside businesses. The government has worked with private groups before on surveillance, but here it is in large part driven by private agents, both for contractors and information gathering.

    6. It predicts the future for individuals using mass data. Surveillance has generally used mass data to either predict or determine future courses of action on a mass scale. For instance, Census data is used to allocate federal money, or predict population growth. Alternatively, it uses individual data to analyze individual behavior - asking around and snooping to dig up dirt on someone, for instance.

    The surveillance state, however, allows for using mass data to predict the actions of individuals and groups of individuals. This is what generates your Netflix and Amazon suggestions, but it is also now providing the basis for government actions. As Kieran Healy notes, this would have been interesting back in the American Revolution.

    This is distinct from the normal Seeing Like a State (SLS) critique of how states see their citizens. Some think states produce “a logic of homogenization and the virtual elimination of local knowledge...an agency of homogenization, uniformity, grids and heroic simplification” (SLS 302, 8). But rather than flatten or homogenize its citizens when observed under bulk conditions, it actually creates a remarkably individualized image of what its citizens are up to.

    What else is missing, or shouldn't have been listed? You could view these as a technological evolution of what was already in place, and in some ways that would make sense. But the technology has opened a brand new field. This existed before the War on Terror, and will likely exist afterwards; dealing with the laws and institutions behind this new state is crucial. As the technology has changed, so must our laws.

    Follow or contact the Rortybomb blog:

      

     

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    We Already Tried Libertarianism - It Was Called Feudalism

    Jun 11, 2013Mike Konczal

    Bob Dole recently said that neither he nor Ronald Reagan would count as conservatives these days. It’s worth noting that John Locke probably wouldn’t count as a libertarian these days, either.

    Michael Lind had a column in Salon in which he asked, “[i]f libertarians are correct in claiming that they understand how best to organize a modern society, how is it that not a single country in the world in the early twenty-first century is organized along libertarian lines?” EJ Dionne agrees. Several libertarians argue that the present is no guide, because the (seasteading?) future belongs to libertarians.

    I’d actually go in a different direction and say the past belonged to libertarians. We tried libertarianism for a long time; it was called feudalism. That modern-day libertarianism of the Nozick-Rand-Rothbard variety resembles feudalism, rather than some variety of modern liberalism, is a great point made by Samuel Freeman in his paper "Illiberal Libertarians: Why Libertarianism Is Not a Liberal View." Let’s walk through it.

    Freeman notes that there are several key institutional features of liberal political structures shared across a variety of theorists. First, there’s a set of basic rights each person equally shares (speech, association, thought, religion, conscience, voting and holding office, etc.) that are both fundamental and inalienable (more on those terms in a bit). Second, there’s a public political authority which is impartial, institutional, continuous, and held in trust to be acted on in a representative capacity. Third, positions should be open to talented individuals alongside some fairness in equality of opportunity. And last, there’s a role for governments in the market for providing public goods, checking market failure, and providing a social minimum.

    The libertarian state, centered solely around ideas of private property, stands in contrast to all of these. I want to stick with the libertarian minimal state laid out by Robert Nozick in Anarchy, State, and Utopia (ASU), as it's a landmark in libertarian thought, and I just re-read it and wanted to write something about it. Let’s look at how it handles each of the political features laid out above.

    Rights. Libertarians would say that of course they believe in basic rights, maybe even more than liberals! But there’s a subtle trick here.

    For liberals, basic rights are fundamental, in the sense that they can’t be compromised or traded against other, non-basic rights. They are also inalienable; I can’t contractually transfer away or otherwise give up my basic rights. To the extent that I enter contracts that do this, I have an option of exit that restores those rights.

    This is different from property rights in specific things. Picture yourself as a person with a basic right to association, who also owns a wooden stick. You can sell your stick, or break it, or set it on fire. Your rights over the stick are alienable - you don’t have the stick anymore once you’ve done those things. Your rights to the stick are also not fundamental. Given justification, the public could regulate its use (say if it were a big stick turned into a bridge, it may need to meet safety requirements), in a way that the liberal state couldn’t regulate freedom of association.

    When libertarians say they are for basic rights, what they are really saying is that they are for treating what liberals consider basic rights as property rights. Basic rights receive no more, or less, protection than other property rights. You can easily give them up or bargain them away, and thus alienate yourself from them. (Meanwhile, all property rights are entirely fundamental - they can never be regulated.)

    How is that possible? Let’s cut to the chase: Nozick argues you can sell yourself into slavery, a condition under which all basic liberties are extinguished. (“[Would] a free system... allow him to sell himself into slavery[?] I believe that it would.” ASU 331) The minimal libertarian state would be forced to acknowledge and enforce contracts that permanently alienate basic liberties, even if the person in question later wanted out, although the liberal state would not at any point acknowledge such a contract.

    If the recession were so bad that millions of people started selling themselves into slavery, or entering contracts that required lifelong feudal oaths to employers and foregoing basic rights, in order to survive, this would raise no important liberty questions for the libertarian minimal state. If this new feudal order were set in such a way that it persisted across generations, again, no problem. As Freeman notes, “what is fundamentally important for libertarians is maintaining a system of historically generated property rights...no attention is given to maintaining the basic rights, liberties, and powers that (according to liberals) are needed to institutionally define a person’s freedom, independence, and status as an equal citizen.”

    Government. Which brings us to feudalism. Feudalism, for Freeman, means “the elements of political authority are powers that are held personally by individuals, not by enduring political institutions... subjects’ political obligations and allegiances are voluntary and personal: They arise out of private contractual obligations and are owed to particular persons.”

    What is the libertarian government? For Nozick, the minimal state is basically a protection racket (“protection services”) with a certain kind of returns to scale over an area and, after some mental cartwheels, a justification in forcing holdouts in their area to follow their rules.

    As such, it is a network of private contracts, arising solely from protection and arbitration services, where political power also remains in private hands and privately exercised. The protection of rights is based on people’s ability to pay, bound through private authority and bilateral, individual contracts. “Protection and enforcement of people’s rights is treated as an economic good to be provided by the market,” (ASU 26) with governments as a for-profit corporate entities.

    What doesn’t this have? There is no impartial, public power. There’s no legislative capacity that is answerable to the people in a non-market form. There’s no democracy and universal franchise with equal rights of participation. Political power isn’t to be acted on in a representative capacity toward public benefit, but instead toward private ends. Which is to say, it takes the features we associate with public, liberal government power and replaces them with feudal, private governance.

    Opportunity. Liberals believe that positions should be open for all with talent, and that public power should be utilized to ensure disadvantaged groups have access to opportunities. Libertarianism believes that private, feudal systems of exclusion, hierarchy, and domination are perfectly fine, or at least that there is no legitimate public purpose in checking these private relationships. As mentioned above, private property rights are fundamental and cannot be balanced against other concerns like opportunity. Nozick is clear on this (“No one has a right to something whose realization requires certain uses of things and activities that other people have right and entitlements over.” ASU 238).

    Do we need more? How about Rand Paul, one of the leading advocates for libertarianism, explaining why he wouldn’t vote for the Civil Rights Act: “I abhor racism. I think it’s a bad business decision to exclude anybody from your restaurant — but, at the same time, I do believe in private ownership.”

    Markets. The same goes for markets, where Nozick is pretty clear: no interference. “Taxation of earnings from labor is on a par with forced labor.” (ASU, 169) Nozick thinks it is likely that his entitlement theory will lead to an efficient distribution of resources and avoid market problems, but he doesn’t particularly require it and contrasts himself with end-staters who assume it will. “Distribution according to benefits to others is a major patterned strand in a free capitalist society, as Hayek correctly points out, but it is only a strand and does not constitute the whole pattern of a system of entitlements.” (ASU 158)

    I sometimes see arguments about how bringing “markets” into the provision of government services makes it more libertarian. Privatizing Social Security, bringing premium support to Medicare, or having vouchers for public education is more libertarian than the status quo. Again, it’s not clear to me why libertarians would think taxation for public, in-kind provisioning is a form of slavery and forced labor while running these services through private agents is not.

    You could argue that introducing markets into government services respects economic liberty as a basic liberty, or does a better job of providing for the worst off, or leaves us all better off overall. But these aren’t libertarian arguments; they are the types of arguments Nozick spends Part II of ASU taunting, trolling, or otherwise bulldozing.

    Three last thoughts. (1) Do read Atossa Abrahamian on actually existing seasteading. (2) It’s ironic that liberalism first arose to bury feudal systems of private political power, and now libertarians claim the future of liberalism is in bringing back those very same systems of feudalism. (3) Sometimes libertarians complain that the New Deal took the name liberal, which is something they want to claim for themselves. But looking at their preferred system as it is, I think people like me will be keeping the name “liberal.” We do a better job with it.

    Follow or contact the Rortybomb blog:

      

     

    Bob Dole recently said that neither he nor Ronald Reagan would count as conservatives these days. It’s worth noting that John Locke probably wouldn’t count as a libertarian these days, either.

    Michael Lind had a column in Salon in which he asked, “[i]f libertarians are correct in claiming that they understand how best to organize a modern society, how is it that not a single country in the world in the early twenty-first century is organized along libertarian lines?” EJ Dionne agrees. Several libertarians argue that the present is no guide, because the (seasteading?) future belongs to libertarians.

    I’d actually go in a different direction and say the past belonged to libertarians. We tried libertarianism for a long time; it was called feudalism. That modern-day libertarianism of the Nozick-Rand-Rothbard variety resembles feudalism, rather than some variety of modern liberalism, is a great point made by Samuel Freeman in his paper "Illiberal Libertarians: Why Libertarianism Is Not a Liberal View." Let’s walk through it.

    Freeman notes that there are several key institutional features of liberal political structures shared across a variety of theorists. First, there’s a set of basic rights each person equally shares (speech, association, thought, religion, conscience, voting and holding office, etc.) that are both fundamental and inalienable (more on those terms in a bit). Second, there’s a public political authority which is impartial, institutional, continuous, and held in trust to be acted on in a representative capacity. Third, positions should be open to talented individuals alongside some fairness in equality of opportunity. And last, there’s a role for governments in the market for providing public goods, checking market failure, and providing a social minimum.

    The libertarian state, centered solely around ideas of private property, stands in contrast to all of these. I want to stick with the libertarian minimal state laid out by Robert Nozick in Anarchy, State, and Utopia (ASU), as it's a landmark in libertarian thought, and I just re-read it and wanted to write something about it. Let’s look at how it handles each of the political features laid out above.

    Rights. Libertarians would say that of course they believe in basic rights, maybe even more than liberals! But there’s a subtle trick here.

    For liberals, basic rights are fundamental, in the sense that they can’t be compromised or traded against other, non-basic rights. They are also inalienable; I can’t contractually transfer away or otherwise give up my basic rights. To the extent that I enter contracts that do this, I have an option of exit that restores those rights.

    This is different from property rights in specific things. Picture yourself as a person with a basic right to association, who also owns a wooden stick. You can sell your stick, or break it, or set it on fire. Your rights over the stick are alienable - you don’t have the stick anymore once you’ve done those things. Your rights to the stick are also not fundamental. Given justification, the public could regulate its use (say if it were a big stick turned into a bridge, it may need to meet safety requirements), in a way that the liberal state couldn’t regulate freedom of association.

    When libertarians say they are for basic rights, what they are really saying is that they are for treating what liberals consider basic rights as property rights. Basic rights receive no more, or less, protection than other property rights. You can easily give them up or bargain them away, and thus alienate yourself from them. (Meanwhile, all property rights are entirely fundamental - they can never be regulated.)

    How is that possible? Let’s cut to the chase: Nozick argues you can sell yourself into slavery, a condition under which all basic liberties are extinguished. (“[Would] a free system... allow him to sell himself into slavery[?] I believe that it would.” ASU 331) The minimal libertarian state would be forced to acknowledge and enforce contracts that permanently alienate basic liberties, even if the person in question later wanted out, although the liberal state would not at any point acknowledge such a contract.

    If the recession were so bad that millions of people started selling themselves into slavery, or entering contracts that required lifelong feudal oaths to employers and foregoing basic rights, in order to survive, this would raise no important liberty questions for the libertarian minimal state. If this new feudal order were set in such a way that it persisted across generations, again, no problem. As Freeman notes, “what is fundamentally important for libertarians is maintaining a system of historically generated property rights...no attention is given to maintaining the basic rights, liberties, and powers that (according to liberals) are needed to institutionally define a person’s freedom, independence, and status as an equal citizen.”

    Government. Which brings us to feudalism. Feudalism, for Freeman, means “the elements of political authority are powers that are held personally by individuals, not by enduring political institutions... subjects’ political obligations and allegiances are voluntary and personal: They arise out of private contractual obligations and are owed to particular persons.”

    What is the libertarian government? For Nozick, the minimal state is basically a protection racket (“protection services”) with a certain kind of returns to scale over an area and, after some mental cartwheels, a justification in forcing holdouts in their area to follow their rules.

    As such, it is a network of private contracts, arising solely from protection and arbitration services, where political power also remains in private hands and privately exercised. The protection of rights is based on people’s ability to pay, bound through private authority and bilateral, individual contracts. “Protection and enforcement of people’s rights is treated as an economic good to be provided by the market,” (ASU 26) with governments as a for-profit corporate entities.

    What doesn’t this have? There is no impartial, public power. There’s no legislative capacity that is answerable to the people in a non-market form. There’s no democracy and universal franchise with equal rights of participation. Political power isn’t to be acted on in a representative capacity toward public benefit, but instead toward private ends. Which is to say, it takes the features we associate with public, liberal government power and replaces them with feudal, private governance.

    Opportunity. Liberals believe that positions should be open for all with talent, and that public power should be utilized to ensure disadvantaged groups have access to opportunities. Libertarianism believes that private, feudal systems of exclusion, hierarchy, and domination are perfectly fine, or at least that there is no legitimate public purpose in checking these private relationships. As mentioned above, private property rights are fundamental and cannot be balanced against other concerns like opportunity. Nozick is clear on this (“No one has a right to something whose realization requires certain uses of things and activities that other people have right and entitlements over.” ASU 238).

    Do we need more? How about Rand Paul, one of the leading advocates for libertarianism, explaining why he wouldn’t vote for the Civil Rights Act: “I abhor racism. I think it’s a bad business decision to exclude anybody from your restaurant — but, at the same time, I do believe in private ownership.”

    Markets. The same goes for markets, where Nozick is pretty clear: no interference. “Taxation of earnings from labor is on a par with forced labor.” (ASU, 169) Nozick thinks it is likely that his entitlement theory will lead to an efficient distribution of resources and avoid market problems, but he doesn’t particularly require it and contrasts himself with end-staters who assume it will. “Distribution according to benefits to others is a major patterned strand in a free capitalist society, as Hayek correctly points out, but it is only a strand and does not constitute the whole pattern of a system of entitlements.” (ASU 158)

    I sometimes see arguments about how bringing “markets” into the provision of government services makes it more libertarian. Privatizing Social Security, bringing premium support to Medicare, or having vouchers for public education is more libertarian than the status quo. Again, it’s not clear to me why libertarians would think taxation for public, in-kind provisioning is a form of slavery and forced labor while running these services through private agents is not.

    You could argue that introducing markets into government services respects economic liberty as a basic liberty, or does a better job of providing for the worst off, or leaves us all better off overall. But these aren’t libertarian arguments; they are the types of arguments Nozick spends Part II of ASU taunting, trolling, or otherwise bulldozing.

    Three last thoughts. (1) Do read Atossa Abrahamian on actually existing seasteading. (2) It’s ironic that liberalism first arose to bury feudal systems of private political power, and now libertarians claim the future of liberalism is in bringing back those very same systems of feudalism. (3) Sometimes libertarians complain that the New Deal took the name liberal, which is something they want to claim for themselves. But looking at their preferred system as it is, I think people like me will be keeping the name “liberal.” We do a better job with it.

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    Jousting knights image via Shutterstock.com

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    We Just Had the Lowest Core Inflation in 50 Years. What Does This Mean for "Expectations" and Monetary Policy?

    Jun 5, 2013Mike Konczal

    Last Friday, the BEA announced the lowest year-over-year rise in core inflation it has ever recorded. The year-over-year PCE core inflation, or inflation stripped of volatile energy and food prices, was 1.05 percent. As Doug Short notes, the previous all-time low was 1.06, and that is from March 1963. (The records go back to 1959.) Inflation is collapsing in 2013, both for observed values and future expectations. This is noteworthy because, as you may remember, the Federal Reserve took extraordinary actions at the end of last year to hit its inflation target.

    Let’s put up a chart from Doug Short:

    I had mentioned falling inflation in my Bernanke versus austerity column, but wanted a bit more core information before I flagged it. It’s now here. This is a major issue that isn’t being discussed. It gets to the heart of whether or not the Federal Reserve can manage the economy at the zero lower bound of interest rates through expectations, guidance, and purchases, which is a central issue now and for the future of economic policy.

    It’s also worth discussing because the idea that the Fed has a lot of room is expanding into new ranks via conservative reformers. Josh Barro, now at Business Insider, just argued that “market monetarism is the shining success of the conservative reform movement.” Crucially, it is being used by thinkers on the right to justify ignoring fiscal stimulus. Ross Douthat just wrote that reform conservatives believe that “monetary policy [is] an alternative...to further fiscal stimulus,” and Brink Lindsey also mentioned being pro-monetary policy but anti-fiscal stimulus at a recent Roosevelt Institute conference.

    Market monetarists can mean a range of things, from the generic observation that the Fed could be “doing more” to the idea of tying our monetary policy to a nonexistent futures market. But the idea that the Federal Reserve can be effective at the zero lower bound by setting expectations of future policies through commitments is an important part of the equation.

    As David Becksworth noted (discussing a nominal GDP target, but still applicable to an inflation target), “[k]nowing that the Fed would be willing to buy up trillion of dollars of assets if necessary to hit its target would cause the market itself to do much of the heavy lifting.” And that’s what the Federal Reserve did last year.

    Bernanke made clear he was going for 2 percent inflation at the beginning of last year. Instead of pegging low rates to future dates, he tied them to economic conditions, like unemployment being above 6.5 percent and inflation being lower than 2.5 percent. The higher ceiling made sure that inflation could go above 2 percent without tightening. And he then backed that up with new open-ended purchases set to those conditions. The Fed committed to purchasing a lot of assets until unemployment or inflation hit a limit or until they hit their inflation target - and so far inflation has done the exact opposite of what a reasonable person would have expected.

    (It’s likely that the Federal Reserve’s actions are working through giving everyone ultra-low mortgage rates. That is boosting the housing market by encouraging new homes, bidding up the value of existing homes, and allowing aggressive refinancing. But, as far as I understand it, this is far away from the expectations channel that most ZLB monetary policy people reference. Indeed government actions like FHA backstopping the market, or HARP 2.0 ignoring the legal underwriting of reps and warranties on underwater refis, are big pieces of this story.)

    Maybe everything will change and inflation will increase, but for now what should we conclude? First, the move to lock in 4 trillion dollars in deficit reduction was premature and is putting the recovery at serious risk. But perhaps the problem is that Bernanke is still too timid, and that a “regime change” is needed to wake up the financial markets. A move to 4 percent inflation would force the markets to act.

    Whether or not you thought that the moves put into place would necessarily get inflation to 2 percent, certainly they should have provided a floor at last fall’s rates. The fact that inflation is falling even when more action is being taken should have us questioning whether a 4 percent move would have any traction. Also, for better or worse, if there was more disinflation after the 4 percent inflation target was announced, the Federal Reserve would likely see it as a major hit to its credibility.

    Others think watching inflation is misguided, and we should instead be watching nominal GDP. That too may be in trouble. The NGDP chart that David Becksworth uses is showing a drop, last week showed a 0.1 percent decline in the Q1 2013 revision (instead of a rally), and with lower expected Q2 growth and disinflation real GDP is likely to fall further.

    But my concern is that if the Federal Reserve is incapable of establishing even baseline “expectations” management of its institutional 2 percent inflation target at the zero lower bound, it’s not clear that it can do expectations management for brand new targets like nominal GDP while it is still there.

    If zero lower bound monetary policy can’t manage a recovery through managing “expectations,” then ironically having something like a 4 percent inflation target in normal times is even more important. If the zero lower bound is this brutal to "unconventional" monetary policy, then it is even more important that we don't reach it. And we are less likely to reach it with more room. The question is how do we get to a situation where that is possible?

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    Last Friday, the BEA announced the lowest year-over-year rise in core inflation it has ever recorded. The year-over-year PCE core inflation, or inflation stripped of volatile energy and food prices, was 1.05 percent. As Doug Short notes, the previous all-time low was 1.06, and that is from March 1963. (The records go back to 1959.) Inflation is collapsing in 2013, both for observed values and future expectations. This is noteworthy because, as you may remember, the Federal Reserve took extraordinary actions at the end of last year to hit its inflation target.

    Let’s put up a chart from Doug Short:

    I had mentioned falling inflation in my Bernanke versus austerity column, but wanted a bit more core information before I flagged it. It’s now here. This is a major issue that isn’t being discussed. It gets to the heart of whether or not the Federal Reserve can manage the economy at the zero lower bound of interest rates through expectations, guidance, and purchases, which is a central issue now and for the future of economic policy.

    It’s also worth discussing because the idea that the Fed has a lot of room is expanding into new ranks via conservative reformers. Josh Barro, now at Business Insider, just argued that “market monetarism is the shining success of the conservative reform movement.” Crucially, it is being used by thinkers on the right to justify ignoring fiscal stimulus. Ross Douthat just wrote that reform conservatives believe that “monetary policy [is] an alternative...to further fiscal stimulus,” and Brink Lindsey also mentioned being pro-monetary policy but anti-fiscal stimulus at a recent Roosevelt Institute conference.

    Market monetarists can mean a range of things, from the generic observation that the Fed could be “doing more” to the idea of tying our monetary policy to a nonexistent futures market. But the idea that the Federal Reserve can be effective at the zero lower bound by setting expectations of future policies through commitments is an important part of the equation.

    As David Becksworth noted (discussing a nominal GDP target, but still applicable to an inflation target), “[k]nowing that the Fed would be willing to buy up trillion of dollars of assets if necessary to hit its target would cause the market itself to do much of the heavy lifting.” And that’s what the Federal Reserve did last year.

    Bernanke made clear he was going for 2 percent inflation at the beginning of last year. Instead of pegging low rates to future dates, he tied them to economic conditions, like unemployment being above 6.5 percent and inflation being lower than 2.5 percent. The higher ceiling made sure that inflation could go above 2 percent without tightening. And he then backed that up with new open-ended purchases set to those conditions. The Fed committed to purchasing a lot of assets until unemployment or inflation hit a limit or until they hit their inflation target - and so far inflation has done the exact opposite of what a reasonable person would have expected.

    (It’s likely that the Federal Reserve’s actions are working through giving everyone ultra-low mortgage rates. That is boosting the housing market by encouraging new homes, bidding up the value of existing homes, and allowing aggressive refinancing. But, as far as I understand it, this is far away from the expectations channel that most ZLB monetary policy people reference. Indeed government actions like FHA backstopping the market, or HARP 2.0 ignoring the legal underwriting of reps and warranties on underwater refis, are big pieces of this story.)

    Maybe everything will change and inflation will increase, but for now what should we conclude? First, the move to lock in 4 trillion dollars in deficit reduction was premature and is putting the recovery at serious risk. But perhaps the problem is that Bernanke is still too timid, and that a “regime change” is needed to wake up the financial markets. A move to 4 percent inflation would force the markets to act.

    Whether or not you thought that the moves put into place would necessarily get inflation to 2 percent, certainly they should have provided a floor at last fall’s rates. The fact that inflation is falling even when more action is being taken should have us questioning whether a 4 percent move would have any traction. Also, for better or worse, if there was more disinflation after the 4 percent inflation target was announced, the Federal Reserve would likely see it as a major hit to its credibility.

    Others think watching inflation is misguided, and we should instead be watching nominal GDP. That too may be in trouble. The NGDP chart that David Becksworth uses is showing a drop, last week showed a 0.1 percent decline in the Q1 2013 revision (instead of a rally), and with lower expected Q2 growth and disinflation real GDP is likely to fall further.

    But my concern is that if the Federal Reserve is incapable of establishing even baseline “expectations” management of its institutional 2 percent inflation target at the zero lower bound, it’s not clear that it can do expectations management for brand new targets like nominal GDP while it is still there.

    If zero lower bound monetary policy can’t manage a recovery through managing “expectations,” then ironically having something like a 4 percent inflation target in normal times is even more important. If the zero lower bound is this brutal to "unconventional" monetary policy, then it is even more important that we don't reach it. And we are less likely to reach it with more room. The question is how do we get to a situation where that is possible?

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    Dube, Kimball, and Wang, All on Reinhart/Rogoff

    May 31, 2013Mike Konczal

    Two excellent new additions to the debate over what the link is between high debt loads and growth came out in the past 24 hours.

    The first is by Arindrajit Dube, "A Note on Debt, Growth and Causality": "This note documents the timing in the relationship between the debt-to-GDP ratio and real GDP growth in advanced economies during the post World War II period using the dataset from Carmen Reinhart and Ken Rogoff. I first show that the debt ratio is more clearly associated with the 5-year past average growth rate, rather than the 5-year forward average growth rate–indicating a problem of reverse causality. Indeed, there is little evidence of a lower growth rate above the 90 percent threshold when using the 5-year forward average growth rate....non- and semi-parametric plots provide visual confirmation that the relationship between debt-to-GDP ratio and growth is essentially flat for debt ratios exceeding 30 percent when we (1) use forward growth rates, (2) control for past GDP growth, or both."

    This short paper formalizes a recent post Dube wrote at this blog, extending his semi-parametric analysis out to five years. It also provides all the equations, as well as some of the literature on this debate. It's an important piece, dismantling the arguments that debt leads to lower growth.

    The second is by Miles Kimball and Yichuan Wang at Quartz. "Based on economic theory, it would be surprising indeed if high levels of national debt didn’t have at least some slow, corrosive negative effect on economic growth. And we still worry about the effects of debt. But the two of us could not find even a shred of evidence in the Reinhart and Rogoff data for a negative effect of government debt on growth."

    Using different ranges (including 5-10 years out) and different techniques, Kimball and Wang can't find any evidence for the Reinhart and Rogoff thesis that high debt loads are correlated with lower growth. It's a remarkable post, where you can read them become surprised at what they are and are not seeing, and how they take pains to make sure they aren't missing something.

    Now where are the posts arguing the opposite? The literature hasn't addressed this well at all. Indeed, in their recent letter to Paul Krugman, Reinhart and Rogoff argued that the "repeatedly-expressed view that slow growth causes high debt but not visa-versa, is hardly supported by the recent literature on the subject."  They suggest checking out their appendix to their New York Times piece for more info, which tells us to check out the World Economic Outlook.

    But even the Outlook warns us on causation (in the paragraph immediately after the one they cite, no less): "But there are limits to empirical studies on the economic effects of debt overhangs. For example, countries that have high debt levels may have low growth for other reasons that typically are not captured in the econometric models. In fact, some studies find no causal relationship between high debt and lower growth. The October 2012 Global Financial Stability Report finds that countries with debt above 100 percent of GDP experience lower growth, but it also finds that countries with high but falling debt ratios grew faster than countries with lower but increasing debt ratios."

    Straightforward checks for casuality are missing from these previous studies. I'm not sure why, but now that people are looking at these issues with fresh eyes, it is suddenly much more difficult to make the statements about high debt leading to low growth with any certainty, much less the one that has dominated the converation during the turn to austerity after 2010.

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    Two excellent new additions to the debate over what the link is between high debt loads and growth came out in the past 24 hours.

    The first is by Arindrajit Dube, "A Note on Debt, Growth and Causality": "This note documents the timing in the relationship between the debt-to-GDP ratio and real GDP growth in advanced economies during the post World War II period using the dataset from Carmen Reinhart and Ken Rogoff. I first show that the debt ratio is more clearly associated with the 5-year past average growth rate, rather than the 5-year forward average growth rate–indicating a problem of reverse causality. Indeed, there is little evidence of a lower growth rate above the 90 percent threshold when using the 5-year forward average growth rate....non- and semi-parametric plots provide visual confirmation that the relationship between debt-to-GDP ratio and growth is essentially flat for debt ratios exceeding 30 percent when we (1) use forward growth rates, (2) control for past GDP growth, or both."

    This short paper formalizes a recent post Dube wrote at this blog, extending his semi-parametric analysis out to five years. It also provides all the equations, as well as some of the literature on this debate. It's an important piece, dismantling the arguments that debt leads to lower growth.

    The second is by Miles Kimball and Yichuan Wang at Quartz. "Based on economic theory, it would be surprising indeed if high levels of national debt didn’t have at least some slow, corrosive negative effect on economic growth. And we still worry about the effects of debt. But the two of us could not find even a shred of evidence in the Reinhart and Rogoff data for a negative effect of government debt on growth."

    Using different ranges (including 5-10 years out) and different techniques, Kimball and Wang can't find any evidence for the Reinhart and Rogoff thesis that high debt loads are correlated with lower growth. It's a remarkable post, where you can read them become surprised at what they are and are not seeing, and how they take pains to make sure they aren't missing something.

    Now where are the posts arguing the opposite? The literature hasn't addressed this well at all. Indeed, in their recent letter to Paul Krugman, Reinhart and Rogoff argued that the "repeatedly-expressed view that slow growth causes high debt but not visa-versa, is hardly supported by the recent literature on the subject."  They suggest checking out their appendix to their New York Times piece for more info, which tells us to check out the World Economic Outlook.

    But even the Outlook warns us on causation (in the paragraph immediately after the one they cite, no less): "But there are limits to empirical studies on the economic effects of debt overhangs. For example, countries that have high debt levels may have low growth for other reasons that typically are not captured in the econometric models. In fact, some studies find no causal relationship between high debt and lower growth. The October 2012 Global Financial Stability Report finds that countries with debt above 100 percent of GDP experience lower growth, but it also finds that countries with high but falling debt ratios grew faster than countries with lower but increasing debt ratios."

    Straightforward checks for casuality are missing from these previous studies. I'm not sure why, but now that people are looking at these issues with fresh eyes, it is suddenly much more difficult to make the statements about high debt leading to low growth with any certainty, much less the one that has dominated the converation during the turn to austerity after 2010.

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    Is There Really a "Conservative Reform" Movement in Policy?

    May 23, 2013Mike Konczal

    A few years ago, Freddie DeBoer argued that the terms “left” and “liberal” in the political blogosphere were really more descriptive of argument style and political strategy rather than any actual ideological differences. I think there’s a similar issue at play in the wave of articles about conservatives seeking to reform the movement.

    As 2013 rolls on, we are seeing more and more articles about conservative reformers. Ryan Cooper had a list of “reformish conservatives” at the Washington Monthly, and now Jonathan Chait has a great profile of Josh Barro at The Atlantic. I understand why these articles are written - they profile interesting conservative writers that people should read more. But I don’t think they actually make their point.

    Here’s how Chait sets it up: “conservative reformists... [argue] that the GOP’s product itself, not merely its marketing slogans, needs to change. Writers like David Brooks, Ross Douthat, Reihan Salam, and Ramesh Ponnuru have made versions of this case for several years.”

    So there are two elements. First, reformers think that the GOP is currently on the wrong track with its policies, and second, they believe there need to be more “middle-class-friendly solutions” in new policy. This is different than saying that reformers don’t argue that the economy is a giant Randian morality play, or that President Obama is a left-wing radical; it’s about specific policies.

    Are either of these things true? I don’t see it. Or, I see it more on the marketing end than on the policy end. I’m going to keep specific individuals vague here and generalize, because the arguments are predicated on a general move rather than any idiosyncratic argument. Here’s what I take to be the current conservative policy consensus:

    1. Social Security and Medicare should be privatized. The word privatization is a complicated one with a lot of meanings, but generally competition should come to Medicare and private accounts to Social Security. This is for budgeting reasons, but also ideological ones. As Yuval Levin wrote, “the vision that has dominated our political imagination for a century — the vision of the social-democratic welfare state — is drained and growing bankrupt.”

    2. Everything that isn’t nailed to the floor should be block-granted to the states. From there, funding should be slowed, and private agents should be emphasized at all points. Welfare reform, but for everything (especially Medicaid).

    3. The tax code is too progressive, and that was true even before the changes in the fiscal cliff. The number of brackets should be reduced, perhaps even to two. Taxes in general should be lower, with some base-broadening to balance it.

    4. The way to deal with health care is to allow insurance purchases across state lines while supporting state-level pre-existing condition pools. Ending Obamacare by itself is smart policy, even if something doesn’t “replace” it. And if push comes to shove, universal coverage is not a necessary goal.

    5. Inequality is largely a non-issue, manipulated by liberals to justify their programs. The rich work harder in a global market that rewards skills and superstars. The middle class is only stagnating if you ignore health care costs and the fact that you can consume better technology cheaper. The economy works far better for average people than liberals understand.

    6. Global warming, to whatever extent it is happening, should not have a government response to try and reduce carbon. Market signals, technology, migration, and adapting are better and cheaper options for even the gloomiest predictions. Or, looking at it in a different way, growth will ultimately solve the problem of global warming, and so any government policy that hurts growth (which they all do) is the wrong option.

    I don’t think I’m making a strawman here. (1-3 is directly from Paul Ryan.) So the question is: how many of the reformers disagree with any of those? This is the core of current policy, and I don’t know if any of the reformish crew even disagree with these statements, much less want to spend the energy challenging them.

    Now what about disagreements? What are they adding to the table? As far as I read what reformers bring to the table, it consists of:

    a. Monetary policy shouldn’t adopt a price stability mandate (or a gold standard, for that matter), and in fact Ben Bernanke could and should be doing more to help the recovery with the powers he has available. (Fiscal policy like the stimulus, however, is a bad idea that largely fails.)

    b. Tax credits, particularly the earned income tax credit and the child tax credit, are successful programs which might even be expanded. They’re good even though they mean 47 percent of Americans pay no federal income tax, which conservatives hate. ("Predistribution" means of boosting low-end wages, like a higher minimum wage, should be avoided though.)

    c. Financial institutions should hold more capital, and perhaps we should apply a “structural” reform to the sector like a size cap or siloing of functions.

    d. The government protects incumbent interests in industry, both with obvious subsidies but also with certain property rights, like copyright.

    Am I missing more? These are important things, but it’s really tough to think of this as a general new direction in policy. Much of it is actually a defense and potential extension of already-existing policies against people further to the right. And even here you’ll have major disagreements. (It is amusing to think of Timothy P. Carney writing a column about how Ben Bernanke needs to “commit to being irresponsible.”)

    A lot of the reformer articles posit more aggressive conservative reformers like David Frum, Bruce Bartlett, and now Josh Barro. What stands out to me is that these three write as if the Obama administration happened. The rest of the reformers write as if his first term never happened as a baseline, and crucially that they can’t write stuff seen as getting in the way of repeal.

    They also understand that the Great Recession destroyed the previous consensus that we had solved the question of the business cycle. It’s tougher to argue that we should have a radically smaller federal government when it looks like the size of the government and automatic stabilizers helped keep the Great Recession from becoming a Great Depression-like collapse. The reformers have bounced around on this topic, but aside from the three mentioned, they haven’t had conversions. Mostly they believe the Great Moderation should have just tried harder.

    I’d emphasize one last thing about the policy of conservative reformers: in practice it will likely be more gestural than substantive. I don’t know enough to mediate the health care battles, but I do know financial reform pretty well. And as financial reform is often brought out as an example of new reformers at work, it’s interesting to watch the lack of attention reformers pay to the actual nuts and bolts of the process.

    I don’t see reformers call for getting the head of the CFPB appointed. I don’t see them arguing that repealing FDIC’s new resolution authority powers should be taken out of the Ryan Budget. I don’t see them arguing that efforts to repeal derivatives regulations already are premature or bad policy. I don’t see them angry about the mess of the securitization servicing system, which is creating a nightmare of law-breaking in the housing market. I also don’t seem them arguing the opposite either.

    It’s focused on “break up the banks!” Crucially, this gets its energy from the idea that We Should Do Something Big about financial reform, rather than how it plays into a larger set of regulations, laws, and markets. It’s to position the Republicans as Doing Something where the Democrats haven’t. It’s sadly less policy and more political strategizing.

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    A few years ago, Freddie DeBoer argued that the terms “left” and “liberal” in the political blogosphere were really more descriptive of argument style and political strategy rather than any actual ideological differences. I think there’s a similar issue at play in the wave of articles about conservatives seeking to reform the movement.

    As 2013 rolls on, we are seeing more and more articles about conservative reformers. Ryan Cooper had a list of “reformish conservatives” at the Washington Monthly, and now Jonathan Chait has a great profile of Josh Barro at The Atlantic. I understand why these articles are written - they profile interesting conservative writers that people should read more. But I don’t think they actually make their point.

    Here’s how Chait sets it up: “conservative reformists... [argue] that the GOP’s product itself, not merely its marketing slogans, needs to change. Writers like David Brooks, Ross Douthat, Reihan Salam, and Ramesh Ponnuru have made versions of this case for several years.”

    So there are two elements. First, reformers think that the GOP is currently on the wrong track with its policies, and second, they believe there need to be more “middle-class-friendly solutions” in new policy. This is different than saying that reformers don’t argue that the economy is a giant Randian morality play, or that President Obama is a left-wing radical; it’s about specific policies.

    Are either of these things true? I don’t see it. Or, I see it more on the marketing end than on the policy end. I’m going to keep specific individuals vague here and generalize, because the arguments are predicated on a general move rather than any idiosyncratic argument. Here’s what I take to be the current conservative policy consensus:

    1. Social Security and Medicare should be privatized. The word privatization is a complicated one with a lot of meanings, but generally competition should come to Medicare and private accounts to Social Security. This is for budgeting reasons, but also ideological ones. As Yuval Levin wrote, “the vision that has dominated our political imagination for a century — the vision of the social-democratic welfare state — is drained and growing bankrupt.”

    2. Everything that isn’t nailed to the floor should be block-granted to the states. From there, funding should be slowed, and private agents should be emphasized at all points. Welfare reform, but for everything (especially Medicaid).

    3. The tax code is too progressive, and that was true even before the changes in the fiscal cliff. The number of brackets should be reduced, perhaps even to two. Taxes in general should be lower, with some base-broadening to balance it.

    4. The way to deal with health care is to allow insurance purchases across state lines while supporting state-level pre-existing condition pools. Ending Obamacare by itself is smart policy, even if something doesn’t “replace” it. And if push comes to shove, universal coverage is not a necessary goal.

    5. Inequality is largely a non-issue, manipulated by liberals to justify their programs. The rich work harder in a global market that rewards skills and superstars. The middle class is only stagnating if you ignore health care costs and the fact that you can consume better technology cheaper. The economy works far better for average people than liberals understand.

    6. Global warming, to whatever extent it is happening, should not have a government response to try and reduce carbon. Market signals, technology, migration, and adapting are better and cheaper options for even the gloomiest predictions. Or, looking at it in a different way, growth will ultimately solve the problem of global warming, and so any government policy that hurts growth (which they all do) is the wrong option.

    I don’t think I’m making a strawman here. (1-3 is directly from Paul Ryan.) So the question is: how many of the reformers disagree with any of those? This is the core of current policy, and I don’t know if any of the reformish crew even disagree with these statements, much less want to spend the energy challenging them.

    Now what about disagreements? What are they adding to the table? As far as I read what reformers bring to the table, it consists of:

    a. Monetary policy shouldn’t adopt a price stability mandate (or a gold standard, for that matter), and in fact Ben Bernanke could and should be doing more to help the recovery with the powers he has available. (Fiscal policy like the stimulus, however, is a bad idea that largely fails.)

    b. Tax credits, particularly the earned income tax credit and the child tax credit, are successful programs which might even be expanded. They’re good even though they mean 47 percent of Americans pay no federal income tax, which conservatives hate. ("Predistribution" means of boosting low-end wages, like a higher minimum wage, should be avoided though.)

    c. Financial institutions should hold more capital, and perhaps we should apply a “structural” reform to the sector like a size cap or siloing of functions.

    d. The government protects incumbent interests in industry, both with obvious subsidies but also with certain property rights, like copyright.

    Am I missing more? These are important things, but it’s really tough to think of this as a general new direction in policy. Much of it is actually a defense and potential extension of already-existing policies against people further to the right. And even here you’ll have major disagreements. (It is amusing to think of Timothy P. Carney writing a column about how Ben Bernanke needs to “commit to being irresponsible.”)

    A lot of the reformer articles posit more aggressive conservative reformers like David Frum, Bruce Bartlett, and now Josh Barro. What stands out to me is that these three write as if the Obama administration happened. The rest of the reformers write as if his first term never happened as a baseline, and crucially that they can’t write stuff seen as getting in the way of repeal.

    They also understand that the Great Recession destroyed the previous consensus that we had solved the question of the business cycle. It’s tougher to argue that we should have a radically smaller federal government when it looks like the size of the government and automatic stabilizers helped keep the Great Recession from becoming a Great Depression-like collapse. The reformers have bounced around on this topic, but aside from the three mentioned, they haven’t had conversions. Mostly they believe the Great Moderation should have just tried harder.

    I’d emphasize one last thing about the policy of conservative reformers: in practice it will likely be more gestural than substantive. I don’t know enough to mediate the health care battles, but I do know financial reform pretty well. And as financial reform is often brought out as an example of new reformers at work, it’s interesting to watch the lack of attention reformers pay to the actual nuts and bolts of the process.

    I don’t see reformers call for getting the head of the CFPB appointed. I don’t see them arguing that repealing FDIC’s new resolution authority powers should be taken out of the Ryan Budget. I don’t see them arguing that efforts to repeal derivatives regulations already are premature or bad policy. I don’t see them angry about the mess of the securitization servicing system, which is creating a nightmare of law-breaking in the housing market. I also don’t seem them arguing the opposite either.

    It’s focused on “break up the banks!” Crucially, this gets its energy from the idea that We Should Do Something Big about financial reform, rather than how it plays into a larger set of regulations, laws, and markets. It’s to position the Republicans as Doing Something where the Democrats haven’t. It’s sadly less policy and more political strategizing.

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